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For Americans, Europe consists of France, Germany, Britain, etc., the nations of Europe. The European Union, which groups these nations, is a paper name to us, like APEC or OPEC.

Jan. 1, however, the EU gets real. This Tuesday, the major nations of the European Continent switch to a common currency, the euro, backed by a single central bank. Their monetary and (to large extent) economic policies will converge, just as they converge in the United States.

This is without question the EU's boldest step. Past achievements, such as creating a single market and common passport, have been significant, but hardly noticed outside Europe. Exporters know Europe has a common external tariff, but tariffs are abstractions.

The euro is real money and will circulate in 12 EU nations in place of familiar marks, francs, lire, etc. The changeover will be completed by the end of February, though Germany plans to do it, cold turkey, Jan. 1. It will be the most complex financial transaction in history. Some 14 billion euro notes and 50 billion euro coins will be put in circulation, mostly through banks and ATMs.

Businesses, stores, computers, vendors, cabbies, buses, bartenders and bookies will be charging new prices and making new change in new bills and coins. Citizens of such countries as Italy, which haven't used coins, will need stronger pockets.

American economists have been blasting the euro idea, arguing it will make managing economies impossible. What happens, they ask, if Greece needs easy credit and Germany tight? Harvard's Martin Feldstein paints the worst scenario, saying the euro could "reinforce longstanding animosities based on history, nationality and religion" and lead to open conflict.

Mr. Feldstein has a second, more serious criticism: that the euro will lead to the "weakening of America's current global hegemony and complicate international military relationships."

In other words, America's interest in Europe's bold step forward is not purely academic. These 12 nations, with a GDP equal roughly to 70 percent of the U.S. GDP (by purchasing power parity) and 90 percent if Britain joins the euro, are capable of creating a reserve currency that will rival and weaken the dollar, eroding America's position in the world.

So far, nothing of the kind has happened. The euro's existence for business and bank transactions since 1998 has not weakened a dollar buoyed by a strong U.S. stock market.

The dollar has stayed strong because it is still the only safe-haven, reserve currency, providing America with a privilege no other nation enjoys: America runs permanent trade deficits without weakening its currency, for even if the world is flooded with dollars, it finds them useful.

The question Mr. Feldstein and others raise is this: What happens when a real alternative to the dollar exists, a stable currency, backed by reliable, trading nations with open and transparent markets and ample reserves?

Economists note that empires are traditionally built on the export of capital, while America is now a net importer of capital (about 15 percent of GDP in 2000). The EU exports capital, which will enhance its influence.

If third nations become just as willing to hold euros as dollars, just as interested in euro markets as dollar markets; if they choose to denominate commodities like oil in euros instead of dollars, that will pinch our economy.

Indeed, that will pinch our foreign policy. What happens if Saudi Arabia chooses to price oil in euros instead of dollars because EU Middle East policy is seen as more evenhanded?

In the short term, the dollar should be fine. Foreigners finance our trade deficits because they want to invest in America, and investing in America is easier than investing in Europe.

The eurobond market is a success, but equities are another story. Europe's stock markets remain national and fragmented.

But in the longer run, EU firms and shareholders, spurred by the euro and the elimination of exchange rate complications, will accelerate cross-border mergers and acquisitions and demand an EU-wide stock market.

When that happens, the euro will become a true rival for the dollar.

The euro story has many plots and subplots, none more interesting than the British. Britain, which has been last at every stage of European integration since the founding of the Coal and Steel Community 50 years ago, has not joined the euro.

Not yet.

Unlike the other nations, Britain has pledged to let the people vote in a referendum on the euro, probably in a year or two. Polls show the British solidly against.

That could change. Britain does more than half its trade with the EU and is deeply involved in merger activity. If the euro proves an EU success, Prime Minister Tony Blair will want Britain to join and may be popular enough to pull off a victory.

He will stake his future on the vote, for the euro is an emotional issue in Britain. The euro cost Margaret Thatcher her job a decade ago and sent her Conservative Party into oblivion. It will be a close call for Mr. Blair.